Situation

The Federal Energy Regulatory Commission has scheduled a one-day technical conference Jan. 16, 2003 to solicit information for the purpose of evaluating the status of capital available to energy markets and infrastructure. A second conference will be held Feb. 5 on credit issues and potential solutions.

El Paso remained in an Unauthorized Overpull Penalty situation Friday due to low linepack and forecasts of cold weather in its operating area. The pipeline reported being “under withdrawal” at its Washington Ranch storage facility. Shippers were urged to review the performance of suppliers to insure that receipts were sufficient to cover deliveries. El Paso said it lacked the flexibility to offer paybacks or allow overpulls during the UOP period, which was declared Thursday. It added that markets will not be kept whole and limits will be placed on scheduled volumes at underperforming interconnects to insure system integrity.

Amid muddled fundamentals and a rapidly improving technical situation, natural gas futures reversed direction Wednesday as local traders used Tuesday’s retracement as a springboard to new eight-week highs. A 10.8-cent gain in the September contract was trumped by an 11.3-cent rise in the October contract. The two months, which constitute the end of the seven-month summer strip and storage injection season, finished at $3.274 and $3.339 respectively. The only non-bullish factor Wednesday was estimated volume, which at 95,733 was a little on the low side.

Desperate to improve its financial situation, Dynegy Inc. announced it is selling all of Northern Natural Gas Co. (NNG) to Berkshire Hathaway’s MidAmerican Energy Holdings Co. for $928 million in cash and the assumption of $950 million in outstanding NNG debt. The transaction results in nearly a $600 million loss on the asset, which Dynegy bought from Enron late last year for $1.5 billion, but provides much needed liquidity to Dynegy, which has been under intense selling pressure on the stock market, particularly last week when its shares reached a low of 51 cents. Dynegy shares were up 52 cents (76%) on Monday to $1.20.

Citing low linepack and maximum withdrawals at its Washington Ranch storage facility, El Paso declared an Unauthorized Overpull Penalty situation Sunday. The OFO was being lifted Tuesday afternoon, a spokeswoman said.

Caught between a bullish short-term weather outlook and a bearish long-term storage situation, traders in the gas pit at Nymex played it safe Friday, electing not to press prices too much in either direction ahead of the weekend. With that the February contract finished the session at $2.204, up 1.9 cents for the day, but down 7.1 cents for the week. Estimated volume was a little less than average, with just 75,087 contracts changing hands.

Confronted with a bearish storage situation and a bullish weather outlook, natural gas traders opted to follow the guidance of the latter Thursday as they lifted the market off of a negative close to notch the first positive close for the week. The January contract received the biggest buying boost, shuffling 7 cents higher to close at $2.686. Estimated volume of 90,049 was high considering the extremely-tight, 5-cent trading range.

Saying it was experiencing maximum withdrawals at the Washington Ranch storage facility, El Paso declared an Unauthorized Overpull Penalty situation Wednesday morning due to low linepack. Because of the OFO and high system demand, a maintenance shutdown of Line 1100 upstream of Guadalupe Station that had been scheduled for today was postponed until further notice.

An Unauthorized Overpull Penalty situation declared Tuesday afternoon by El Paso remained in effect Wednesday until further notice.